ICICI Prudential Life Insurance Company Limited - ICRA
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
ICICI Prudential Life Insurance Company Limited
April 25, 2019
Summary of rating action
Current Rated Amount
Instrument Rating Action
(Rs. crore)
Claims paying ability rating - iAAA; reaffirmed
Rationale
The rating takes into account the strong support from ICICI Prudential Life Insurance Company Limited’s (ICICI Pru)
parents, ICICI Bank Limited (rated [ICRA]AAA(Stable)) and Prudential Corporation Holdings Limited (rated A2 with a
Stable outlook by Moody’s), its position as one of the largest private sector life insurers in the country based on new
business premium, the strong bancassurance channel, robust underwriting performance with increasing focus on the
protection business and comfortable solvency levels.
ICRA notes the slowdown in the savings business due to the dominance of the large-ticket unit-linked insurance plan
(ULIP) business in its product mix, which is more susceptible to market volatility. ICICI Pru’s ability to comply with
regulatory changes while maintaining the growth and profitability targets will remain a key monitorable. Going forward,
the increasing focus on improving the protection mix and diversifying into the mass affluent and mass customer
segments is expected to reduce the company’s vulnerability to weak market conditions.
Outlook: Not applicable
Key rating drivers
Credit strengths
Strong promoter profiles – ICICI Bank and Prudential held 52.87% and 25.82%, respectively, in ICICI Pru as on December
31, 2018. The majority shareholder, ICICI Bank, is one of the largest private sector banks in India with a network of 4,867
branches across the country. It is also the exclusive bancassurance partner of ICICI Pru, which provides the company with
a wide reach as well as cost efficiency. ICICI Bank also has a strong brand image as well as capital market position, which
is leveraged by ICICI Pru in terms of a shared brand name. The foreign partner, Prudential, is a leading international
financial services group, headquartered in the United Kingdom.
Leading player in retail segment among private peers with increasing focus on protection products – ICICI Pru is one of
the biggest life insurers in the country with a retail weighted received premium (RWRP)1 market share of 18.7% in the
private sector as on December 31, 2018. However, this reduced from 20.9% in FY2018, predominantly due to a
slowdown in the ULIP business (formed 81% of the annual premium equivalent (APE) in 9M FY2019), on account of
volatile market conditions, which impacted the growth in the savings business. This was largely due to the deferral of
investments in the large-ticket ULIPs by the affluent customer segment, as they are more responsive to market
developments compared to lower income groups.
1 Calculated as the sum of individual non-single premium and 10% of individual single premium
1ICRA expects the growth to recover in FY2020 if the market conditions improve. ICRA also notes ICICI Pru’s efforts to
diversify its customer base in the mass affluent and mass customer segments. Retail formed 95.2% of the company’s
total APE as of December 31, 2018. The company’s RWRP posted a CAGR of 17.5% during FY2015 to FY2018, although it
fell by 11% YoY in 9M FY2019. The company’s successful tie-up with ICICI Bank helps it maintain a strong foothold in the
retail segment. ICICI Pru is also increasing its focus on protection products (100% YoY growth in 9M FY2019). While ICRA
notes the capital-intensive nature of the protection products, the overall profitability is higher in the product life cycle
and will help the value of new business (VNB) margin2 going forward.
Strong bancassurance channel – The company capitalises the extensive reach of ICICI Bank, which has an exclusive tie-up
with ICICI Pru for the sale of life insurance products. In 9M FY2019, the share of bancassurance distribution was 56.5% of
the total APE, which predominantly includes contributions from ICICI Bank. Standard Chartered Bank is another
significant partner in bancassurance, and ICICI Pru has tie-ups with a few small finance banks as well. The share of
bancassurance has increased from 52.1% in 9M FY2018. The company plans to tap this channel further, along with the
agency and broker channels, to increase its reach in the mass affluent segment.
Comfortable capitalisation – ICICI Pru’s solvency stood at 224% as on December 31, 2018 compared to the minimum
regulatory requirement of 150%. The solvency ratio is comfortable to support growth at current levels in the medium
term. However, ICRA notes the high dividend payout ratio compared to the company’s large peers. In case of sustained
aggressive growth in the protection business, the capitalisation may be supported by a reduction in dividend payouts or
the raising of subordinated debt, along with internal accruals.
Profitability remains strong, although profits have declined due to growth in protection business, increasing the new
business strain, and slow-down in top line growth– The company has been consistent in posting sustainable profits in
the past few years, until 9M FY2019, which was impacted by a slowdown in the top line. Unfavourable market conditions
led to a slowdown in the business. ICICI Pru reported an RoE of 17.2% in 9M FY2019, down from 25.4% in 9M FY2018.
The profitability is, however, aided by the tight control of operating expenses (operating expense ratio of 14.2%), and
strong persistency levels (13-month persistency of 85.4% and 61-month persistency of 56.60%). Being in a high growth
phase, the growth in PAT is expected to remain flat in the shorter term due to the strain on underwriting new business,
more so for protection products than for savings products. However, VNB margin, which is a better profitability indicator
in life insurance business, has remained stable at 17% in 9M FY2019 (16.5% in FY2018).
Credit challenges
Ability to grow and maintain profitability in protection business – The company needs higher growth in its protection
portfolio for attaining significant value accretion, as it already has a lean cost structure. The business has shown strong
growth in the last few years, which is expected to moderate in the medium term. The protection business, which formed
9% of the APE in 9M FY2019, has low adoption in the country compared to savings. However, improving customer
awareness is expected to expand the market. Hence, the ability to scale up the portfolio to a sizeable proportion in a
small market, while maintaining the product pricing and death claims settlement ratio, is a key monitorable.
ULIPs susceptible to capital market movements – ICICI Pru’s product mix continues to be dominated by ULIPs. This
makes the company’s operations more vulnerable to the vagaries of the capital market. Although the business has lower
capital requirement, its low-margin nature necessitates improvement in the persistency levels and cost control. In 9M
FY2019, ICICI Pru saw a decrease in new business and lower growth in renewal premium in the ULIP segment. However,
2 Calculated as value of new business divided by annual premium equivalent
2ICRA notes that the company has taken steps to diversify into the mass affluent segment, which has relatively stable
investment patterns even in volatile market conditions. The existing customer mix largely comprises the affluent
segment, with less granularity. The increasing focus on the protection business and foray into other customer segments
is expected to reduce the impact of volatile market conditions, going forward. Maintaining the growth resilience in a
capital market downcycle would be a key point to monitor.
Maintaining profitable growth amid evolving industry challenges and regulations – The insurance industry in India is
highly regulated with frequent large-impact regulations. The regulatory body has proposed a review of the surrender
charges of traditional savings products. Although this business formed around 11% of the company’s APE in 9M FY2019,
the actual impact on profitability remains to be seen. The proposed increase in the tax rate for life insurance companies,
if it comes into effect, is also expected to have a one-time impact on the embedded value and VNB of life insurance
players across the industry.
Liquidity position
The company had a liquidity buffer of Rs. 4,272 crore (calculated as 50% of the sum of total investments, cash and bank
balance, income accrued on investments less fair value change account, policy liabilities and net dues to other insurance
companies) as of December 31, 2018. It has no outstanding subordinated debt. ICRA does not foresee any liquidity risk in
the near term.
Analytical approach
Analytical Approach Comments
Methodology for claims paying ability ratings for Domestic Life Insurance
Applicable Rating Methodologies Companies
Impact of Parent or Group Support on an Issuer’s Credit Rating
Parent/Investor: ICICI Bank
The rating considers the financial and management support received by ICICI Pru
from its parent in the form of senior management deputation and board
Parent/Group Support representation. The rating also factors in the company’s strong ability to leverage
ICICI Bank’s wide branch network for the distribution of insurance policies. ICRA
notes the shared brand name and past capital support from the promoters,
indicating implicit support from the parent.
For arriving at the rating, ICRA has used the consolidated financials of ICIC Pru. As
Consolidation on March 31, 2018, the company had one subsidiary, which is listed in Annexure-
2.
About the company
ICICI Prudential Life Insurance Company Limited is a joint venture between ICICI Bank, one of India's foremost financial
services companies, and Prudential Corporation Holdings Limited, a leading international financial services group
headquartered in the United Kingdom. Following the initial public offer in September 2016, ICICI Bank holds a stake of
52.87% while Prudential holds a stake of 25.82% (as on December 31, 2018). The rest is publicly held.
Incorporated in July 2000, the company provides life insurance, pensions and health insurance to individuals and groups.
Products are offered under the participating, non-participating, non-participating variable and unit-linked lines of
business. These are distributed through individual agents, corporate agents, banks, brokers, the company’s proprietary
sales force and its website. It has a national presence comprising ~505 branches and over 1.71 lakh agents as on March
31, 2019.
3Key financial indicators (audited; consolidated)
FY2017 FY2018 9M FY2018 9M FY2019
Gross Direct Premium 22,354 27,069 18,340 20,766
Income from Investment and Fees 15,732 12,154 13,421 5,078
Total Operating Expensei 3,170 3,559 2,419 2,905
PAT 1,682 1,619 1,279 878
Total Net Worth 6,406 6,882 6,724 6,811
Total Policy Holders +
33,702 41,035 39,046 45,139
Shareholders Investmentsii
Operating Expense Ratio 14.2% 13.3% 13.2% 14.2%
Return on Equity 26.3% 23.5% 25.4%* 17.2%
13th Month Persistency Ratio 85.7% 86.8% 86.6% 85.4%
61st Month Persistency Ratio 56.2% 54.5% 54.5% 56.6%
Regulatory Solvency Ratio 2.81 2.52 2.52 2.24
Amounts in Rs. crore
* 9M returns are annualised
Status of non-cooperation with previous CRA: Not applicable
Any other information: None
Rating history for last three years
Chronology of Rating History for the
Current Rating (FY2020)
Past 3 Years
Date & FY2019 FY2018
Instrument Amount FY2017
Amount Outstanding Rating
Type Rated
(Rs. crore)
(Rs. crore) Apr-19 Apr-18 Apr-17 Mar-16
Claims paying Long
1 - - iAAA iAAA iAAA iAAA
ability Term
Complexity level of the rated instrument
ICRA has classified various instruments based on their complexity as "Simple", "Complex" and "Highly Complex". The
classification of instruments according to their complexity levels is available on the website www.icra.in
4Annexure-1: Instrument details
Amount
Date of
Coupon Maturity Rated Current Rating
ISIN No. Instrument Name Issuance /
Rate Date (Rs. and Outlook
Sanction
crore)
NA Claims paying ability NA NA NA NA iAAA
Source: ICICI Pru
Annexure-2: List of entities considered for consolidated analysis
Consolidation
Company Name Ownership
Approach
ICICI Prudential Pension Funds Management
100% Full consolidation
Company Limited
5ANALYST CONTACTS
Karthik Srinivasan Sahil Udani
+91 22 6114 3444 +91 22 6114 3429
karthiks@icraindia.com sahil.udani@icraindia.com
Parvathy S Rohan Rustagi
+91 22 6114 3428
parvathy.s@icraindia.com +91 22 6114 3414
rohan.rustagi@icraindia.com
RELATIONSHIP CONTACT
L. Shivakumar
+91 22 6114 3406
shivakumar@icraindia.com
MEDIA AND PUBLIC RELATIONS CONTACT
Ms. Naznin Prodhani
Tel: +91 124 4545 860
communications@icraindia.com
Helpline for business queries:
+91-9354738909 (open Monday to Friday, from 9:30 am to 6 pm)
info@icraindia.com
About ICRA Limited:
ICRA Limited was set up in 1991 by leading financial/investment institutions, commercial banks and financial services
companies as an independent and professional investment Information and Credit Rating Agency.
Today, ICRA and its subsidiaries together form the ICRA Group of Companies (Group ICRA). ICRA is a Public Limited
Company, with its shares listed on the Bombay Stock Exchange and the National Stock Exchange. The international Credit
Rating Agency Moody’s Investors Service is ICRA’s largest shareholder.
For more information, visit www.icra.in
6ICRA Limited
Corporate Office
Building No. 8, 2nd Floor, Tower A; DLF Cyber City, Phase II; Gurgaon 122 002
Tel: +91 124 4545300
Email: info@icraindia.com
Website: www.icra.in
Registered Office
1105, Kailash Building, 11th Floor; 26 Kasturba Gandhi Marg; New Delhi 110001
Tel: +91 11 23357940-50
Branches
Mumbai + (91 22) 24331046/53/62/74/86/87
Chennai + (91 44) 2434 0043/9659/8080, 2433 0724/ 3293/3294,
Kolkata + (91 33) 2287 8839 /2287 6617/ 2283 1411/ 2280 0008,
Bangalore + (91 80) 2559 7401/4049
Ahmedabad+ (91 79) 2658 4924/5049/2008
Hyderabad + (91 40) 2373 5061/7251
Pune + (91 20) 2556 0194/ 6606 9999
© Copyright, 2019 ICRA Limited. All Rights Reserved.
Contents may be used freely with due acknowledgement to ICRA.
ICRA ratings should not be treated as recommendation to buy, sell or hold the rated debt instruments. ICRA ratings are subject to a process of
surveillance, which may lead to revision in ratings. An ICRA rating is a symbolic indicator of ICRA’s current opinion on the relative capability of the issuer
concerned to timely service debts and obligations, with reference to the instrument rated. Please visit our website www.icra.in or contact any ICRA
office for the latest information on ICRA ratings outstanding. All information contained herein has been obtained by ICRA from sources believed by it to
be accurate and reliable, including the rated issuer. ICRA however has not conducted any audit of the rated issuer or of the information provided by it.
While reasonable care has been taken to ensure that the information herein is true, such information is provided ‘as is’ without any warranty of any
kind, and ICRA in particular, makes no representation or warranty, express or implied, as to the accuracy, timeliness or completeness of any such
information. Also, ICRA or any of its group companies may have provided services other than rating to the issuer rated. All information contained
herein must be construed solely as statements of opinion, and ICRA shall not be liable for any losses incurred by users from any use of this publication
or its contents
i Including net commission
ii Does not include asset held to cover linked liabilities
7You can also read
